"There's a secular movement that's happening...more to an annuity relationship as well as a subscription relationship. These are the long-term relationships we want to have with all customers," Nadella said.
Nadella said that it "was always our dream" to have such a relationship with all of Microsoft's customers, both individuals and businesses. Now, with products like Office 365 and others, it can, he said.
That doesn't exclude Windows. Microsoft has said previously that it will offer Windows as a service. Nadella hinted that consumers will hear more details next week. "There will be an increasing emphasis on the lifetime value that we can deliver to customers," he said.
Surface revenue also climbed a whopping 44 percent to $713 million, driven by Surface Pro 3, Microsoft said. On the other hand, Xbox hardware revenue dipped 24 percent year over year, a tough comparison given that the Xbox One launched just over a year ago. Microsoft sold 8.6 million Lumia smartphones, an 18 percent boost compared to a year ago.
Nadella demonstrated how the company's hardware and software complement each other. For example, he said, Surface users are nine times more likely to use OneNote than other computer users. (OneNote can be triggered by tapping the Surface stylus.) "This shows how great hardware innovation influences customer experience," Nadella said. Nadella added that he anticipates the Cortana digital assistant "will completely change what personal productivity means."
Even Bing continued to show growth, breaking 20 percent for the first time. "I see real monetization of all of our services," Nadella said.
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